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Mixed Results

Submitted by ldfriedrich on December 21, 2011 - 2:07pm

UPDATE: As we told you in the last CGN (read below), legislators voted in November to increase the state’s Earned Income Tax Credit (EITC) as part of a larger package that included tax breaks for Sears Holdings and the CME Group. On January 10, 2012, Governor Quinn signed SB400 into law, bringing the state EITC from 5% of the federal credit to 7.5% in 2012 and 10% in 2013. As part of the Make Work Pay Coalition, staff from PCG were at the signing to share in the victory.

Gov. Quinn, Sen. Toi Hutchinson, and Rep. Barbara Flynn Currie – the two sponsors of the bill – all pointed out the benefits EITC will have for working families and local businesses. Rep. Currie noted, “This credit rewards work and will help families keep a roof over their head and food on the table.” Under the new law, a single mother with one child, earning $12,800 a year, will save $154 on her taxes. A married couple with three children earning $30,000 a year will save $199 on their taxes this year. Roughly 935,000 families were eligible for the tax increase in 2010, and tax experts from the Center for Economic Progress believe that number could be closer to one million for 2011.

As Senator Hutchinson said, “This is a good day.” PCG agrees: celebrating the signing of the EITC is a great way to start the New Year. It’s a timely example of Martin Luther King’s belief that progress is made up of many smaller victories. We will continue to advocate for policies that will help low-income, working families, and we will continue to fight for a more progressive tax structure in Illinois. In the meantime, however, let’s take heart in the good news that families in need will have a little extra to support their basic needs this year.

The results of the 2012 protracted fall session of the General Assembly are, at best, mixed.

First, the good result: SB 400 passed, bringing a long-overdue increase to the state Earned Income Tax Credit (EITC) from the current 5% of the federal credit to 7.5% in 2012 and 10% in 2013 and thereafter. This is good news for low-income, working families who file for the credit at “tax time.” Families who qualify for the highest credit (two parents, two children with a maximum income of $45,350) will have about $200 additional dollars to spend on basic necessities after they file their 2011 tax returns.

The legislation adds a degree of progressivity to the state’s flat income tax, one of the most regressive in the country. Low-income families in Illinois pay a much higher share of their income in state taxes than the national average while high-income families pay a much lower share of their income than the national average. The Illinois EITC was very low compared to other Midwestern states whose EITC rates range from 7 to 33% of the federal credit.

SB 400 also increased the standard exemption on the Illinois personal income tax from $2,000 to $2,050 per person in 2012 and subsequently ties it the Consumer Price Index.

Now, the not-so-good result: While the legislature took a couple of steps that will help low-income, working families to a small degree, the General Assembly took no action to address the backlog of unpaid bills, estimated to be a total of $6.3 billion. Instead, the Illinois House and Senate, with the Governor’s encouragement, enacted substantial tax breaks for large, highly profitable corporations which had threatened to leave the state is they did not receive some tax relief.

Passage of SB 397 set up a combined $100 million in tax savings for the CME Group (the Chicago Merchantile Exchange and the Chicago Board of Options Exchange) and Sears Holdings. The legislation also extends the business research and development credit through 2015, increases the estate tax exclusion, includes a live theater production tax credit along with several other costly items.

Whether these tax incentives, as some prefer to call them, will stimulate the economy and create new jobs—as promised by CME and Sears—remains to be seen. The cost of the tax breaks is expected to be around $200 million in the first year and more in the years that follow. Representative Greg Harris (D-13th) has estimated that the “job creators,” as characterized by some legislators during the negotiations, will have to create 78,960 new $50,000 jobs to cover the cost of the tax breaks.